The Hindu Business Line : The wheat challenge

The wheat situation is getting murky, and going by the developments so far, there may be no winners this season. Reports from producing centres suggest that despite the anticipated higher output (73.5 million tonnes versus last year's 69.5 m.t.), market arrivals have been tardy. As a result, government procurement volumes are running a third lower than they were this time last year. Apprehensions that the final procurement figure may fall 15-20 per cent short of the targeted 15 m.t. look real. Wheat prices in the open market are showing no signs of cooling. Imports on private account have begun, and may gather momentum in the coming months. Caused by drought conditions in Australia, there is uncertainty over global wheat production, and therefore upside risk to prices. But what is happening in the domestic market?

Clearly, mandi arrivals are much slower than usual as farmers are holding back the crop in anticipation of higher prices. Last year, there was a price surge — from Rs 750 a quintal at the time of harvest to over Rs 1,100 a few months later — on lower crop size and corporate purchases. A large number of growers could not take advantage of the price rise then and felt short-changed. This season, far from being anxious sellers, they seem to be willing to take the risk of waiting for what they think is the right price. Undeniably, this newfound awareness about price action is thanks to the ready availability of market and price information using modern technology. The power of information is beginning to turn growers into savvy traders. This may just be the beginning of a long process of empowering farmers, simply by delivering useful information — be it on weather, inputs, markets or prices — by commodity exchanges and the media.

The policymakers have clearly been caught off-guard even as the market has once again proved supreme. How New Delhi extricates itself from the unintended consequences of higher production, lower procurement, high open market prices and large imports remains to be seen. As a desperate measure, the Government is seriously looking at the derivatives market to hedge its vulnerable position and has sounded out several corporates for wheat imports, using options contract; but this is at best a palliative and not a sure cure. One of the best things to have happened to Indian agriculture is the liberation of the markets. But the tragedy is the policymakers have failed to address supply-side constraints. There is a lesson here. Opening up the market without corresponding and vigorous efforts to create conditions for sustained growth of farm production is sure to result in demand-supply mismatch and unsettled market conditions that may hurt the stakeholders. The import option is a facile one, and should be resorted to in exceptional situations. There is simply no option but to put in serious efforts to strengthen agriculture with growth-oriented policies and actions.